The COVID-19 pandemic can be seen as an unprecedented economic crisis. The shock that comes from the health crisis has hit both supply-side and demand-side economies. Businesses are losing revenue, investors are in great doubt, and the government faces a deeper deficit. Furthermore, the contraction is driven by turbulences in household spending and investment. Mobility restrictions have impacted productivity and wealth, while the end of the pandemic remains uncertain.

Uncertainty is perhaps the only thing that is certain in this life. This crisis has the world wondering whether tomorrow will be as good as today. COVID-19 has highlighted the path of economic uncertainty. However, uncertainty always haunts the economy, even without a pandemic. Uncertainty is inherent to the economy.

Unlike risk, uncertainty is impossible to calculate. A number of contemporary solutions are out there, which might be good or bad. Any effort is yet to be tested in the long-run, a highly reasonable reason to keep the public policy prudent at all times.

In the monetary sector, BPS data show that July saw month-to-month deflation of 0.1 percent in July. Although it might not always be the case, deflation usually comes as a consequence of economic contraction.

But why does deflation matter? Doesn’t it mean that the economy is going back to square one, where prices are lower? Straight answer: It does. The problem lies with the reality that the burden of the economy rises from time to time. Deflation is not what the economy needs.

The world has known for long the concept of the central bank, which has the main duty to act countercyclically with the business cycle to ensure stability. In normal times, the central bank fights against inflation to keep it low and stable to support growth. Today, it is quite the reverse.

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